Before going through the Ind AS discussed below, it is very important to understand its denotation and reason for why it came into view.
Ideally, the financial statements record the transactions made in current reporting period. However, for the purpose of shareholder’s decision-making and to show true and fair view, there are several events, which happen after reporting date but are significant for the current reporting Period. Thus, to maintain transparency of financial statement, reporting of significant events, occurring post reporting date, are required. This IND AS deals with those adjusting entries which arise after the preparation of balance sheet and have to be adjusted in the previous year itself.
To summarize the same following are the important points are to be taken into consideration while applying Ind AS 10.
Scope This Standard shall be applicable to the entities in accounting and disclosure of events after the reporting period.
Definitions The meaning of the following terms used repetitively in the Standard are:-
Events after the reporting period are those favorable and unfavorable events that occur between the end of the reporting of the financial statements and the date of approval of financial statements by the board of directors of the company and the relevant authority in case of an entity other than a company. These can be classified under two headings as follows:
Those which denote the conditions arising at the end of the reporting period commonly known as Adjusting events; and
Those which denote the conditions after the reporting period commonly known as Non-Adjusting events.
The procedures relating to approval of financial statements will depend on management policies, how financial statements are prepared and completed and the compliance procedures.
In cases where the approval of the shareholders is required after the approval of the board of directors, the date for issue of approval of Board members will be considered.
Recognition
Adjusting events after the reporting period: If any event was in the knowledge of entity on reporting period, but it occurred after reporting period then it can be adjusted in the financial statements of previous year even if these items occurred after reporting period.
Non-Adjusting events after the reporting period: If any event was not in the knowledge of the entity at reporting period then we cannot adjust such unknown event in the financial statements of previous year. These events should be considered as new events and we will adjust these items in next year. E.g. decrease in the market value of investments between the end of the reporting of the financial statements and the date of approval of financial statements by the board of directors. This sudden expected change was not expected at the end of the financial year in computing carrying forward of investments. Therefore, the adjustment will not be made in the financial statements of previous year.
Dividends: When the company decides to declare dividend to its equity shareholders between the end of the reporting of the financial statements and the date of approval of financial statements, it will not be recorded as a liability because the obligation to pay these dividends will fall in the next year.
Going Concern: This principle indicates the entity’s willingness to not liquidate its business in near future. When the management decides to cease its operations and the intention of liquidating its business after the reporting period, the entity shall not prepare its financial statements on going concern anymore.
Disclosures Important disclosures to be made are:
The date on which the approval of financial statements was made and also, who made the approval; and
Where the information regarding non-adjusting events is material and will affect the economic decision of users, the entity shall disclose the nature of estimate of the financial impact of such event.
The following disclosures made by the entity on the settlement of dividend payable shall be:
The difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable shall be recognized as profit or loss and disclosed separately,
The opening and closing amount of the dividend payable; and
Any increase or decrease in the carrying amount as a result of change in the fair value of the asset.
When an entity wishes to declare dividend in the form of non-cash asset between the end of the reporting of the financial statements and the date of approval, it shall disclose:
The nature and carrying amount of the asset which is being distributed;
If the carrying amount of such an asset is different from the fair value as on that date, the fair value of the asset shall be disclosed; and
The method used to determine the fair value of the asset.
In light of the above statements, Ind AS 10 also refers to Ind AS 1, it can be concluded that the entity will have to make disclosures on some principles such as going concern basis and the basis on which the entity prepares its financial statements. It shall include the reasons for discontinuation of this principle.
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